Total Revenue, Total Cost, and Profit • The Firm’s Objective – The economic goal of the firm is to maximize profits. • Total Revenue – The amount a firm receives for the sale of its output. • Total Cost – The market value of the inputs a firm uses in production.

Total Revenue, Total Cost, and Profit • Profit is the firm’s total revenue minus its total cost. • Profit = Total revenue - Total cost

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Costs as Opportunity Costs • A firm’s cost of production includes all the opportunity costs of making its output of goods and services. • Explicit and Implicit Costs – A firm’s cost of production include explicit costs and implicit costs. • Explicit costs are input costs that require a direct outlay of money by the firm. • Implicit costs are input costs that do not require an outlay of money by the firm.

Economic Profit vs Accounting Profit • Economists measure a firm’s economic profit as total revenue minus total cost, including both explicit and implicit costs. • Accountants measure the accounting profit as the firm’s total revenue minus only the firm’s explicit costs.

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